After imposing 20 per cent export duty on select rice varieties on Thursday, the Centre in a late night order banned the exports of all forms of broken rice with immediate effect in attempt to cool prices.
The decision to ban exports of broken rice is expected to stop overseas shipment of around 4 million tonnes (MT) of rice largely to countries such as China, where demand has grown exponentially in the last few months due to drought in their main growing areas.
Between April and June, around 1.8 MT of broken rice was exported.
Trade and market sources said in total around 10 MT of rice exported (5.9 MT under export duty and 4 MT fully banned) out of the average annual exports of 21-22 MT will now be under some sort of restriction.
The ban on broken rice has come into effect from September 9, but the notification says that between September 9 and 15, consignments and shipments for which loading began in the ports and shipping bills have been filed of vessels berthed or where broken rice consignments have been handed over to the Customs before the ban will be allowed to be exported.
This exemption has been granted to ensure that in-transit shipments and goods that have already left the hinterland do not pile up in the ports as was the case when wheat exports were banned on May 14.
Last evening the government imposed a 20 per cent export duty on select rice varieties, but kept items like basmati and parboiled rice out of its purview. Trade sources said that with a 20 per cent export duty several Indian rice varieties will get priced out in the world markets as prices will immediately go up by $60-80 per tonne.
Cheapest in the world
Before the export duty, some India rice varieties were quoting at around $380-400 per tonne (FOB), while the price of nearest competitor was higher than this, making Indian rice amongst the cheapest available in the world markets, boosting its demand.
“This was also resulting in some pilferage and allegations that rice meant for distribution through the PDS and also under the Pradhan Mantri Gareeb Kalyan Ann Yojana (PMGKAY) was getting diverted towards exports due to low price in the international markets and high demand,” a senior industry official said.
In fact, the quick succession in which both the decisions of first imposing the export tax and following it up with a total ban on broken rice exports has fuelled talk that Centre might be coming around to a decision on further extending the free foodgrain distribution scheme (PMGKAY) beyond September.
The scheme to distribute 5 kg of rice or wheat per person per month to the almost 80 crore beneficiaries of the National Food Security Act over and above their regular monthly quota was started during the COVID-19 as a welfare measure.
Since then, the scheme has been extended six times, the latest one being in April for six months. So far, most rice varieties did not attract any export duty.
Meanwhile, market sources said that global rice markets might not remain in the current range for long as rice crop in China, which is one of the major consumers, is under severe stress due to drought in many of its major growing regions.
Drought in the main growing areas here in India has also pulled up the price of rice in the domestic markets and across different varieties rates have risen by almost 6-20 per cent since June. The fear is of a 6-10 million tonnes fall in kharif production this year as compared to last year due to drop in acreage.
In 2021, India produced around 111 MT of rice in the kharif season.
Rahul Chauhan, commodity analyst at iGrain India, said domestic rice prices won’t drop by much for long as global markets are tight and cereals supply is short domestically as well.
On the sowing front, the acreage of paddy was around 6 per cent less than the acreage during the same period last year as on September 2 and so far around 96.5 per cent of the normal area has been already covered.
Normal area is the average acreage of the last five years, which in case of paddy in the kharif season is 39.70 million hectares.
But, given the fact that much of sowing has happened outside the ideal window and monsoon continues to play truant over eastern Indian states of Jharkhand, Bihar, UP and West Bengal there is lots of uncertainty over the final output.
In some states like Jharkhand, the sowing is still woefully down and has reached just 50 per cent of normal area till September 2.
Rice stock in the central pool as on August 16 was around 26.35 MT, while the buffer on October 1 should have been around 10.25 MT. These stocks do not require 12.24 MT of unmilled paddy lying with the millers.